In mid-July short-term lender Borro announced it was to halt its second charge lending amid a spike in demand for re-bridging through brokers from high street lenders as they shun the refinancing existing deals. To curb a rapid increase in its own loan book, Borro took the decision to step away from second charge lending until the uncertainty flooding the market had settled down.
“I’m sure this is just a blip,” CEO Paul Aitken had said at the time, and reassured brokers “once the uncertainty dies down we will be willing to lend again”.
The uncertainty, caused by the UK’s vote to leave the European Union cast on 23 June, was feared to start sending shockwaves through the market, causing high street banks to become less willing to part with funds.
What’s more, around the same time Borro decided to close its books. the chief executive of the Association of Short Term Lenders (ASTL) Benson Hersch told Mortgage Solutions he thought some banks would consider withdrawing their funding to the bridging market.
ASTL’s research had indicated lenders’ outlook on the bridging market post-Brexit had taken a knock: In April, 71% thought the total bridging market would grow over the coming year, sinking to a mere 20% following the referendum.
However, the bridging industry remains defiant. “It’s business as usual,” said Searchlight Finance property finance specialist Simon Allen.
“The current market may push some of the weaker players out but the rest have nothing to be afraid of,” he said.
Similarly, Jackson Cohen managing director Ray Cohen described any disruption in the bridging market as a ‘non-event’.
“The fundamentals in the property market haven’t changed, there is still more demand that outstrips supply,” he explained.
Cohen pointed to Roma Finance, which recently secured a new multi-million pound funding line from the Royal Bank of Scotland, which will allow it to lend up to a further £50m a year.
He said the situation may be a bit tighter in the second charge market where risk is generally higher but he added the willingness to back deals depended on the underlying funding lines of the lender. If funding lines are sound there should not be an issue, he said.
Bridging Finance Solutions managing director Steve Barber suggested if anything, the market was shifting to the north of England, where yields and capital appreciation are still achievable. London on the other hand could stagnate, he said.
“It all depends on geography, deal size and type of property. We lend predominantly in the North East and we are seeing strong demand. In fact we are seeing more London investors investing in the north now [than pre-Brexit],” he said.
But he warned commercial bridging, where deal sizes are a lot larger, was a different story.
Jumbo Bridging CEO Chris Dailly agreed the commercial bridging market was suffering heavily.
Similar to his peers, Dailly said vanilla deals and residential property seemed to have emerged from Brexit unscathed. But in the commercial space his firm has already witnessed a number of deal suspensions worth more than £100m because investors have become more cautious and cut back on alternative lending.
These deals were based in London as well as the north of England. “It was the initial shock that sent the market into a stall. We were hoping the sentiment would become more optimistic,” he said. But he suggested once the political situation clears, the industry would be able to take stock and return to doing business.
Crystal Specialist Finance managing director and Association of Bridging Professionals (AOBP) executive committee member Jo Breeden also said most lenders were treating both first and second charge bridging the same post-Brexit as they did before, based on a “common-sense approach”.
He said the differences between first and second charge was that re-bridging has “never been popular, with only a few lenders in the market considering it.” This has become less popular since Brexit, he suggested. “Someone needing a re-bridge means generally the original bridge didn’t go to plan – some lenders would be cautious about the reasoning behind that.”
He said he has also observed some nervousness from lenders over client exits. “We have seen some lenders become more restricted with loan to value (LTV) and maximum loan size due to concerns over exit. Where a property is being sold lenders are now looking for a 12-month term rather than allowing a shorter period. This would just reflect perceived difficulties in sale,” he said.
Finance 4 Business managing director and AOBP chairman Russell Martin agreed there have been reductions in lending from some individual lenders but said it had not had an effect on the market as a whole. Bank funding for lenders had remained broadly consistent, he suggested.
“Many lenders secure money on a mid-term basis (senior debt) of, say, three years and recycle the funds from redemptions. This is often supported by an agreed level of lender equity on each deal and sometimes and additional mezzanine-type facility for higher leverage transactions. I have not been advised of any lenders having these facilities withdrawn. Some lenders that secure their funding predominantly from overseas funds and investors may have been impacted in the short term,” he said.
Martin said the loans Borro had referred to were predominantly non-high street lender-based and coming to the end of their term, circulating the market to be refinanced for another term.
“Whilst uncertainty persists, many short-term lenders will underwrite cases such as these a lot more forensically,” he said.
He added: “Originations remain consistent and perhaps more importantly the majority of pre-referendum pipeline is completing at the same level and on the terms agreed at the onset demonstrating the professional ethos of the short-term sector.”